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Is Now the Right Time to Go Roth?2/6/2019

Some Say Yes, Pointing to the Recent Federal Tax Reforms.

Presented by the MEMBERS Financial Services Program* located at SLFCU. The MEMBERS Financial Services program is offered through CUNA Brokerage Services, Inc.*, a broker/dealer focused on serving credit union members. CUNA Brokerage Services, Inc. is an affiliate of CUNA Mutual Group. For more information about CUNA Brokerage Services, Inc., please visit cunabrokerage.com.

WILL FUTURE FEDERAL INCOME TAX RATES BE LOWER THAN THEY ARE TODAY?

Given the outlook for Social Security and Medicare, it is hard to imagine them falling. Higher federal income taxes could be on the horizon, as the tax cuts set by the 2017 reforms are scheduled to sunset at the end of 2025.

In addition, the federal government is now using a different yardstick, the chained Consumer Price Index, to measure cost-of-living adjustments in the federal tax code. As a consequence, you could find yourself in a higher tax bracket over time even if current tax rates remain in place.

THIS MAY BE AN IDEAL TIME TO CONVERT A TRADITIONAL IRA TO A ROTH IRA.

A Roth IRA conversion is a taxable event. If you have a traditional IRA, you may be thinking twice about converting it. If the IRA is large, the taxable income linked to the conversion will be sizable, placing you in a higher tax bracket for the conversion year. Still, that may be a small price to pay.1 A jump in your taxable income for the year of the conversion may be a headache – but it is short-term. Consider the many perks and keep in mind any taxpayer can make a Roth conversion, even a taxpayer whose high income precludes the chance of creating a Roth IRA.2

Generally, you can take tax-free withdrawals from a Roth IRA once it has been in existence for five years and you are age 59½ or older. If you end up retiring before 65, tax-free and penalty-free Roth IRA income could be very helpful.2

You can also contribute to a Roth IRA throughout your life, provided you earn income and your income level is not high enough to limit your contributions. In contrast, a traditional IRA does not permit contributions after age 70½ and requires annual withdrawals once you reach that age.2

Lastly, a Roth IRA is convenient in terms of estate planning. Roth IRA assets transfer to your heirs without being taxed.2

A ROTH IRA CONVERSION NEED NOT BE “ALL OR NOTHING.”

Some traditional IRA owners elect to convert just part of their traditional IRA to a Roth, while others choose to convert the entire balance over multiple years. Converting over multiple years allows you to better manage the taxable income stemming from the conversions.1

YOU CAN NO LONGER UNDO A ROTH CONVERSION.

The Tax Cuts & Jobs Act removed the option to “recharacterize” a Roth – that is, to turn a Roth IRA back to a traditional IRA. Since this do-over is no longer allowed, consider your options carefully.1

TALK TO A TAX OR FINANCIAL PROFESSIONAL AS YOU WEIGH YOUR DECISION.

This is a prime time for pre-retirees to go Roth, but the move is not for everyone. Occasionally, the resulting tax hit may seem to outweigh the potential long-term advantages. Study the various financial implications before making the move.

Contact MEMBERS Financial Services to make a no-cost, no-obligation appointment at an SLFCU branch, or contact a financial professional online.

  • Juan Tabo, Jefferson, Cottonwood, Paseo, Rio Rancho, or Los Lunas branches: Call 505.237.3930
  • Edgewood, Kirtland, Tech Park, or Livermore branches: Call 505.237.7330

To learn more about the background of your financial professional and the firm for which they work, visit BrokerCheck by FINRA.


*MEMBERS Financial Services Financial Professionals are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty States of the United States of America. FR-2370487.1-0119-0221

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 - marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-03-26 [8/17/18]
2 - fidelity.com/building-savings/learn-about-iras/convert-to-roth [8/27/18]

 



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